CHAPTER 2: ACCOUNTING CONCEPTS

AND PRINCIPLES

Accounting Concepts and

Principles
 Assumptions or postulates
 A set of logical ideas and
procedures that guide the
accountant in recording and
communicating economic
information.
 Provide reasonable assurance
that information
communicated to users is
prepared in a proper way.
Basic Accounting Concepts
1. Separate Entity Concept
 The transactions of
business are separated
from the transactions
of the owner.
2. Historical Cost Concept
 Assets are initially
recorded at their
acquisition cost.
3. Going Concern Assumption
 The entity does not
expect to end its
operations in the
forceable future.
4. Matching
 Costs are recognized as
expenses when the
related revenue is
recognized.
5. Accrual Basis of Accounting
 Economic events are
recorded when they
occur.
6. Prudence
 Being cautious when
making estimates under
conditions of
uncertainty.
7. Time Period
 Reports should be
prepared timely
(commonly is every 12
months)
8. Stable Monetary Unit